Case 11: Pricing Air Travel In Most Of The World Airlines

Case 11 Pricing Air Travelin Most Of The World Airline Travel Is Ava

Case 11: Pricing Air Travel In most of the world, airline travel is available to domestic and international customers Table 11.8 identifies the top twenty largest airlines in Europe during the year 2016, in terms of passengers. Many of the issues described in this chapter apply to international airline operations. For instance, any competitor in this industry would be subject to the various objectives and pricing methods. Each airline's marketing team could choose from the more common pricing goals, including earning profits, improving market share, retaining current customers, enticing new customers, or countering competitive actions. Selections would be based, in part, on the airline's financial status, country of origin, age, reputation or image, level of governmental protection and investment, and relevant degree of competition.

The pricing methods, based on costs, supply and demand, competition, or profitability, all apply to airlines. The complicating factors are that prices, especially fuel prices, change quickly and dramatically. Supply and demand will be influenced by shifts in economic conditions. Competitors and competitive actions vary widely, as carriers enter and leave the marketplace, while some merge in various types of alliances. Profit targets become difficult to establish in such volatile markets.

In addition, issues such as terrorism affect operations and prices, as airlines seek to provide security for flights, passengers, and crew members. Discounting also affects the international airlines industry. When Ryanair, the low-cost Irish airline, announced plans for flights from the United Kingdom to the United States priced at £10 in the near future, the goal of offering loss leader flights was to gain a foothold in the British market. Beyond these concerns, ethical issues are germane; for instance, one common practice among airlines has been to label airline fees, which count as revenue, as "taxes." A lawsuit filed against British Airways accuses that airline of the practice and states that the pricing is deceptive.

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The primary pricing objectives for the leading airlines in Europe, as listed in the top twenty in 2016, should be aligned with their strategic goals, market positioning, and operational circumstances. For the airlines at the top of the list, such as Ryanair, Lufthansa, IAG, Air France, and EasyJet, profit maximization and market share expansion are likely to be their main objectives. These airlines generally possess substantial market power, brand recognition, and established operational infrastructures, enabling them to pursue aggressive pricing strategies that balance revenue generation with market competitiveness.

For higher-ranked airlines like Ryanair and Lufthansa, profitability remains a core objective, given their extensive networks and higher operational costs. These carriers often leverage economies of scale and aggressive pricing to optimize load factors—using fare pricing to fill seats while covering costs and generating profit. Lufthansa, as a network carrier with a global reach, might also focus on maintaining a premium segment and brand loyalty, influencing its pricing strategies accordingly. Meanwhile, airlines like IAG, which owns multiple brands including British Airways, aim to optimize revenue through differentiated pricing across various customer segments—luxury, business, and economy.

Conversely, the airlines ranked 15–20, such as Aegean/S7, TAP Portugal, Finnair, and Air Europa, may have different primary objectives, often focusing on market penetration and establishing or growing their presence within their core markets. These airlines, generally being smaller or emerging players, might prioritize increasing passenger volumes and network expansion over short-term profit maximization. Their pricing strategies may revolve more around competitive pricing, promotional fares, and entry-level discounts to attract customers from larger competitors.

Thus, while profit-oriented objectives dominate the top-tier airlines striving for sustainability and shareholder value, the lower-ranked ones often center on growth and market capture. Nonetheless, all airlines aim to strike a delicate balance between competitive pricing and cost recovery, especially in volatile markets where fuel prices and geopolitical factors, such as terrorism, influence operational costs and strategic decisions. Ethical considerations, such as transparent fee labeling, also shape pricing policies, fostering consumer trust and compliance with regulations.

Regarding the most suitable pricing approach for the international airline industry, dynamic and value-based pricing models are most aligned with industry realities. The complex and volatile nature of airline markets, characterized by fluctuating fuel prices, variable demand, and fierce competition, necessitates a flexible pricing approach. Cost-plus pricing alone is inadequate because of rapid cost fluctuations and unpredictable demand shifts. Instead, a combination of demand-based pricing strategies, such as yield management and differential pricing, effectively maximizes revenue.

Yield management, which involves adjusting prices according to demand forecasts and remaining capacity, is particularly prevalent in the airline industry. It enables airlines to optimize revenues from various customer segments—economy, premium economy, business, and first class—by implementing differentiated fares and inventory control techniques. This approach is supported by sophisticated revenue management systems that monitor booking patterns and adapt prices in real-time to market conditions.

Moreover, value-based pricing helps airlines capture consumer surplus by offering tailored packages that match customer willingness to pay, especially for international routes with varying levels of competition and demand. As fuel prices and geopolitical risks impact costs unpredictably, airlines also incorporate flexible pricing strategies to stabilize revenues amidst macroeconomic fluctuations.

In conclusion, the best-fit pricing approach for international airlines combines demand-oriented yield management with flexible, dynamic pricing policies. This hybrid model maximizes revenue opportunities while remaining adaptable to rapidly changing external factors, ensuring sustainable profitability in a fiercely competitive and volatile environment.

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